Japanese Shed $8.9 Billion in U.S. Real Estate in 1995
Japanese investors and lenders continued to purge their portfolios of U.S. real estate last year, selling or putting on the auction block $8.9 billion in property, including New York’s famed Rockefeller Center, according to a survey to be released today.
The pace of sales activity last year jumped 40% from 1994 and is expected to remain brisk for several years as Japanese lenders come under increasing government pressure to recognize and rid their books of problem real estate loans and bank-owned properties, according to the annual study conducted by the consulting firm E&Y; Kenneth Leventhal Real Estate Group.
Sales of properties owned or financed by Japanese investors are expected to increase this year in Southern California and in Orange County, where at least 22 major office and hotel properties are owned by the Japanese, the firm said.
“We believe there will be excellent buying opportunities for local investors when these properties go on the market,” said Michael Meyer, managing partner of the Newport Beach office of E&Y; Kenneth Leventhal.
Most of the buyers last year were U.S. corporations and American-led opportunity funds created to pick up distressed real estate. Only 13% of the buyers were foreign.
“It’s buy back America--except we are buying it back at 50 to 60 cents on the dollar,” said Jack Rodman, director of E&Y;’s Pacific Rim practice.
Much of last year’s sell-off took place in California, where the Japanese sold or actively tried to sell $3.5 billion worth of property, according to the study. Those sales continued with the recent auction of a 24-story Japanese-owned office building in downtown Los Angeles for $60 million to other Asian buyers.
While the sale of Japanese property has resulted in many bargains, it is far from a fire sale. The Japanese avoided selling their real estate during the depths of the U.S. real estate recession in the early 1990s and are now benefiting from the revival of property values in many parts of the nation. Last year, Japanese sellers recovered 65% of their original investment compared with 50% in 1993, according to the E&Y; study.
“They are analyzing some of the assets they feel are not going to increase in value in the short term and are putting those properties on the market,” said Wolfgang V. Kupka, a director in the Los Angeles office of Cushman & Wakefield, a brokerage firm that has been involved in the sale of Japanese-owned property.
Cushman & Wakefield, for example, is trying to sell two large parcels of Japanese-owned land in downtown Los Angeles that once were scheduled for development. Those plans have been scrapped as nearly one-quarter of downtown office space remains vacant.
The ongoing disposal of U.S. property marks a dramatic change from the mid- and late-1980s when Japanese investors and banks picked up choice pieces of U.S. real estate at top dollar, raising domestic concerns about foreigners controlling landmark U.S. properties.
The Japanese buying spree climaxed about the time Mitsubishi Estate Co. paid a steep $1.4 billion for a majority stake in Rockefeller Center. Last year, the Mitsubishi-controlled partnerships that own the landmark property filed for Chapter 11 bankruptcy protection amid depressed property values and rents in Manhattan. Mitsubishi later gave up its ownership stake.
